Question

In: Accounting

YOU ARE A STAFF ACCOUNTANT AUDITING A “PRIVATE COMPANY” AND FIND A MISREPRESENTATION DURING REVENUE RECOGNITION...

YOU ARE A STAFF ACCOUNTANT AUDITING A “PRIVATE COMPANY” AND FIND A MISREPRESENTATION DURING REVENUE RECOGNITION TESTING. WHO IS THE FIRST PERSON YOU SHOULD INFORM ABOUT YOUR FINDING. WHO ARE THE OTHER PARTIES YOU WILL INFORM ABOUT THE MISREPRESENTATION IF THE FIRST PARTY DOES NOTHING ABOUT THE MISREPRESENTATION.

Solutions

Expert Solution

  1. The primary responsibility of preparation and presentation of Financial statements is that of management. Duty of auditor/accountant is to express an opinion whether the financial statements shows a true and fair view of the state of affairs and financial position of the company. However, this does not absolves accountant from misrepresentation which comes in light during the audit.
  2. In the given case, staff accountant at the time of auditing private company finds misrepresentation during revenue testing, since it forms major part of the company financial reporting process hence he should first check whether there is actual misrepresentation. If he concludes that misrepresentation exist, he should communicate the same to the management.
  3. If management refuses to make necessary changes, then accountant should follow the requirements of SAS 114-Auditor Communication with Those Charged with Governance (TCWG). He should discuss the matter with TCWG or audit committee if such sub group exist.
  4. If TCWG does make necessary changes in account balances the accountant shall qualify the report accordingly.
  5. In doing so, he should check whether there is any professional or regulatory requirement to report such instances.
  6. Conclusion - First line of reporting - Management and Second line of reporting - TCWG /Audit committee.

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